On Wednesday, the Internal Revenue Service (IRS) issued new guidance on the deductibility of PPP loan eligible expenses in Revenue Ruling 2020-27 and Revenue Procedure 2020-51. Although neither document reverses the IRS’s position on the non-deductibility of the PPP loan expenses that are forgiven, they do offer clarity for the deductibility of the expenses in the event they are NOT forgiven.
Given that the loan forgiveness applications will most likely span beyond December 31, 2020 for some borrowers, the IRS has indicated that if certain conditions are met, the borrower will be able to deduct expenses paid in 2020 in the subsequent year if forgiveness of these expenses are denied.
Revenue Ruling 2020-27 outlines the circumstances under which the expenses would be taken in the current or subsequent year and Revenue Procedure 2020-51 outlines the safe harbor provisions and steps to be taken to deduct eligible expenses in the proper year in the event the PPP loan is fully or partially denied forgiveness or for borrowers who do not request any loan forgiveness.
Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.